Kadena, a blockchain technology company that spun out of the JP Morgan Blockchain Research Group as it was founded by former JPMorgan and SEC technologists, has undergone a rigorous pro-level Wall Street quant economic analysis to prove its scalability and security.
Kadena differs from most other enterprise blockchain products and solutions as it offers the typical high-performing and secure private blockchain for an enterprise scale, but it also has a public blockchain side called ‘Chainweb’ which is purported to be a successful scaled proof-of-work public blockchain.
Tarun Chitra, founder and CEO of Gauntlet Networks, a research company aiming to make crypto networks and their governance interpretable and statistically sound, took to Kadena to apply economic and statistical analysis more often seen in trading in order prove this blockchain is secure at scale, and under a myriad of conditions.
Chitra’s findings were interesting to note as not only do they examine the blockchain and its consensus algorithms in a more economical light to ensure its security and scalability, the research is also reinvigorating the importance of looking at blockchains in a more holistic manner rather than purely Byzantine Fault Tolerant traditional methods of analysis of distributed systems.
A new way of looking at things
Chitra explains how his methodology of examining blockchains differs from the traditional. A look at economic game theory and how a broad spectrum rational actors in the mining ecosystem being analyzed paints a much more comprehensive picture of scalability and security than just the two extremes of total good and total Byzantine
The research being done by Chitra aims to show that there are not just merely two types of actors in a blockchain consensus algorithm – the purely good and the Byzantine one; instead there is a bevvy of actors that operate rationally, much like in algorithmic trading.
“Most formal proofs of blockchain systems focus on two types of actors using the system, one who is perfectly honest and follows the protocol and one who is purely Byzantine, which means they are always trying to do random nefarious actions,” said Chitra. “But in reality, protocols are made up of people who are more like traders; they are rational – sometimes they will be honest, sometimes they can be bribed, sometimes they can be Byzantine – but it is hard to view them as these distinct static categories.”
“We took the approach of modelling different types of rational actors, allowing them to measure their rewards they are getting by mining on different chains (within Chainweb) and then showing that they pay at relatively a high cost to try and censor a chain… So it is not saying that it is impossible[to be corrupt], it is saying that it is so expensive it becomes hard, and you are giving hard statistics on that.
“The idea is to make the economic analysis look more like trading than just pure opposites where one side is trying to destroy, and the other is keeping it safe. In reality, if you want to have good statistics, that reflect this, you need to model on the middle.”
Essentially, Chitra’s agent-based model took Chainweb through many situations where, say, 10,000 simulated miners ran for 10,000 blocks to show what happens to the network under different conditions.
What comes out of the research, instead of focusing on just the two extremes of good and bad actors, is that the middle economic incentives are strong enough for the blockchain to scale securely.
Monica Quaintance, the leader of engineering and adoption strategy at Kadena, goes on to explain exactly what the findings of Chitra’s research were. However, she first outlines how Chainweb is different from many other blockchains.
“Chainweb is basically multiple Bitcoin-like chains that use Nakamoto consensus, and each one maintains their individual ledger, and so there is no sense of shared consensus,” explains Quaintance. “But then the chains pass information to each other to stay synchronized. So you finish a block on one chain and then that publishes the root of that block, the hash of it, into its peer chains, and the peer chains contain that information in their next block, so the network does not diverge.”
“The idea is that you can have many more chains, many more blocks all at the same time, which means you can pump through more transactions, so you don’t have the entire space of miners all trying to mine one block, they can all be mining ‘N’ block, where ‘N’ is the number of chains on the network.”
“When we heard what Tarun [Chitata] was working on, and his background, we wanted to show that Chainweb is economically beneficial to participate in the network in a way that makes the network work.”
“I don’t need to prove that it is impossible to hack… Under certain conditions, everything can be hacked; it is a ridiculous condition to have to prove. What I want to show is you cannot hack Chainweb and be a rational actor given that all you want to do is make money. There is no point hacking as participation as a rational actor will make you a lot of money as a miner.”
The claim is, under this research, that Kadena and Chainweb are the: ‘first and only project to ever successfully scale proof of work securely.’ What that means, as Quaintance explains, is:
“When we say we are the first proven, scalable proof-of-work, it is that we have shown that under many simulations, under many runs, that we can do many transactions using proof-of-work and that the network has a structure that economically beneficially wants everybody to participate in.”
Chitra, through his company Gauntlet Networks, explains that they are trying to be: “The neutral third party research company within the space.” It is an essential and necessary niche that needs to be filled as blockchain still has a long way to be demystified.
Many blockchains and their companies have been able to make bold claims based on improper and often biased research, but for Chitra and Gauntlet, it is firstly about being impartial, and secondly about providing more rounded blockchain proofs.
“We don’t hold tokens, or take payment in them, for conflict of interest reasons,” Chitra adds. “Our goal is to be the main neutral third party research that does not have any skin in the game. There is a weird phenomenon now where a lot of academics are large token holders, so a lot of the papers are being read with scepticism.”
Kadena, backed up by sound research of proof of scale and security, is an essential step for blockchain adoption in the enterprise space. The project is providing the general private blockchain solution, as well as a seemingly functional and scalable public blockchain which adds a lot of strings to the blockchain ecosystem on an enterprise level.
More so, it comes from a good institutionalised foundation in the enterprise space as there is a strong connection to the JP Morgan Blockchain Research Group.
Quaintance explains how Kadena came to be:
“Will Martino (the founder and CEO of Kadena) and I were working at the SEC together, then he left and went to the JP Morgan Blockchain Research Group. The head of that group was Stuart Popejoy (the other founder of Kadena), so Stuart and Will were working on a project called Juno which is a private blockchain, and they suggested that Juno become apart of Hyperledger.”
“However IBM didn’t want to be a part of it, so they went to JPM and asked for support there but were also turned down. So they left and took the idea of better blockchains, and that is how we ended up with a private blockchain and public blockchain and a smart contract language that connects the whole things.”
Making uses for Kadena
While Kadena is up and running as a blockchain-as-a-service on Amazon Web Services (AWS) marketplace, it is still in the process of getting its Chainweb solution up and running. That being said, some great uses cases are emerging for the service, as well as some companies already operating with Kadena.
“We are mostly focused on fin-tech use cases,” says Quaintance. “We do have one Healthcare use, but most are private uses cases as the public network is in test-net and it is not launched yet.
“We have a large insurance company that wants to do co-insurance settlements between multiple insurance companies, so if it’s a big policy that is too big to underwrite as one company, they bring in all their friends and do it together… The way they currently deal with settlements with multiple parties is they literally send paper.”
“We also have a company that wants to do a traditional asset on the blockchain – this is purer fin-tech one. They want to do their AML/KYC on the blockchain and then once you have crossed into their walled garden trade a tokenized version of this asset using the public network tokens.
“The healthcare product, Rymedi, they have vaccination attestation on a public blockchain so they are saying we can prove a vaccination, and they just got approved to do a pilot on patient data records by the federal government, so we are doing a HIPPA compliant blockchain project with them.”
Back to basics
The research published by Chitra is quite important to the advancement of trust in the blockchain space. By taking more of a trading approach the actors within the blockchain consensus algorithm are treated more rational than polar, and this is a bit of a return to how Bitcoin was judged when it first emerged.
“I noticed the literature on the blockchain started with more economic analysis, and then it veered sharply post the Ethereum launch into purely BFT traditional methods of analysis of distributed systems,” Chitra adds. “The early statistical economic approach got lost to the Bull rush. People started publishing papers more of the BFT side, but once I started seeing those papers launch en masse I thought if I understood the economics of it, what exactly could I do.”
“Trying to give economic results to these systems is important because we have veered far away from that. Especially with all these tokens launching, we are running into issues of scalability and security, and no one actually knows what the economics are.”